Electing to be treated as an S-corp offers many benefits to both the business and the owner in Florida.
An S-corp election may save money for your business especially when business profits are greater than your reasonable salary. Determine whether an S-Corp election is right for you and contact the qualified business attorneys at BrewerLong today!
Making an S corporation election is often in the best interest of Florida corporations and LLCs, especially when the owners of the company are also working in company.Business Attorney Trevor Brewer
What Is an S-Corp?
A Florida S-corporation is a for-profit corporation or limited liability company (LLC) that has requested to be taxed under Subchapter S of the United States Tax Code.
A Florida S-corporation reduces its tax burden by passing losses, deductions, income, and credit to its shareholders. S-corps avoid the double taxation of traditional corporations. Eliminating double taxation may potentially save your company hundreds of thousands of dollars.
Florida taxes S-corporation income in the same manner as sole proprietorships and partnerships. The income of corporations is passed to shareholders for reporting. Shareholders use their income tax returns to report losses and income.
A S-corp in Florida is essentially an election for special tax status. However, the same laws and rules apply to S-corporations as other Florida corporations or LLCs.
Why File as an S-Corp?
An S-corp offers many advantages to businesses in Florida. These advantages may outweigh any disadvantages or limitations.
Filing as an S-corp provides the formal structure and limited liability of a corporation and pass-through taxation of business profits. There is no income tax imposed at the corporate level. Income is taxed only on shareholder returns.
Following federal rules, Florida treats S-corp income as pass-through income. Business losses offset other income on shareholders’ tax returns reducing any income tax paid. This feature is particularly advantageous to start-up businesses with limited initial income.
An S-corp election in Florida may permit your business to raise capital more efficiently. S-corporation election allows for the issuance and sale of stock as evidence of interest in the corporation. Some financial lenders may require personal guarantees of business owners limiting the financial liability protection of S-corporation shareholders.
S-corporations only permit one class of stock. The transfer of stock or change in business ownership is simplified. Simplifying class of stock limits interruptions to business operations and avoids unfavorable tax consequences. Eliminating complex accounting analysis saves on unnecessary business expenses.
Each shareholder may lose only as much as they initially invested in the corporation. S-corporations in Florida are treated as a separate entity. Shareholders are not personally liable for any legal judgments, debts, or obligations of the corporation.
For example, if a corporation goes bankrupt, creditors may not pursue the personal assets of shareholders to pay business debts. However, shareholders are liable for any crimes committed or corporate regulations violated. In a sole proprietorship or partnership, owners and the business are considered the same, leaving personal assets vulnerable.
Benefits to Business Owners
S-corporations still enjoy some benefits of a corporation such as insurance benefits, retirement plans, bonuses, and stock option plans. Additionally, there can be a separation of organization and management of a company. The management of the company is not required to hold ownership of the business, in contrast with the structure of partnerships, and sole proprietorships.
Due to the formal commitment to their corporate structure, s-corporations may be viewed as more professional than sole proprietorships or partnerships. Customers and future investors may view your business more favorably, aiding in its success.
Disadvantages of an S-Corp
The disadvantages to filing as an S-corp in Florida may not align with the goals for your business.
Tax Qualification Obligations
Mistakes regarding the election of S-corp status, notification, consent of shareholders, stock ownership, and filing requirements may disqualify S-corporation status. Mistakes may be remedied easily, however, consultation with a qualified business attorney ensures these mistakes do not occur.
Missing the registration requirement deadline for S-corporation status in Florida results in the failure to receive favorable tax treatment for that calendar year. Saving on tax expenses for your business requires satisfaction of these important deadlines.
Stock Ownership Restrictions
An S-corporation in Florida may have only one class of stock. Therefore, no varying classes of investors entitled to different dividends or distribution rights exist.
Flexibility in Allocation of Income and Loss
A traditional corporation easily allocates income and losses to particular shareholders; however, since S-corporations issue only one class of stock, this is more difficult. Allocation of losses and income is governed by stock ownership.
Limitations on S-Corp Structure
There are limitations on what types of companies may register as an S-corp in Florida. It is not the right choice for every kind of business. S-corps in Florida must be based in the United States.
Some businesses, such as financial institutions, insurance companies, or domestic international sales corporations, are not eligible to register as S-corps. Additionally, the business may not have more than 100 shareholders.
Only U.S. residents and citizens are permitted to operate as shareholders in Florida. Shareholders may not be other corporations, limited liability companies, partnerships, or certain trusts.
Additionally, Florida S-corporations issue only one class of stock.
Can An S-Corp Be Reversed?
In the event a Florida S-corp is no longer an advantageous option for your business, reversal of your S-corp status is possible. Limitations exist, however. Reversal of the S-corp election may be done only after one year. You must wait for the following tax year before refiling with the IRS to revert to a traditional corporation.
Need Help with Your Business?
BrewerLong attorneys possess years of dedicated experience in business law matters and can ensure that your company’s formation is correct from the start. Our dedicated attorneys provide clients with knowledgeable legal counsel and answers to your complex legal questions.
We understand the complexity of the small business culture and the quality representation smaller businesses require. BrewerLong attorneys are here to provide you with focused consultation and counsel for your business.
Seeking the counsel of qualified business attorneys can be the difference between success and failure. Contact BrewerLong today to find out if filing as an S-corp in Florida is the right path for your business!
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